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Lovely's Haiti: Small loans, big trouble

Lovely’s aunt needs cash to improve her small business. But will microcredit be helpful or hellish?

Rosita's competition in the Fermathe market sell vegetables, bread, rice and beans. Microloans have been introduced to the country and are helping to get small, sustainable businesses off the ground. (Lucas Oleniuk / Toronto Star) | Order this photo

Lovely's Aunt Rosita and Uncle Elistin are photographed in Fermathe, Haiti. Rosita is firmly against using microcredit loans to fuel her business. Her husband Elistin is in favour of the loans.
(Lucas Oleniuk / Toronto Star) | Order this photo

Fonkoze microloan agent Gertrude Jaclisus accounts for Dorvil Silvie's repayment of a small loan. The client borrows small amounts of money from Fonkoze to fund her business selling oil, gas and charcoal.
(Lucas Oleniuk / Toronto Star) | Order this photo

Mona Remy has used Fonkoze to build a thriving business in Carrefour, Haiti. The landlord who rents the store to Mona recently doubled the size of the unit to accomodate Mona's thriving business, enticing her to stay. (Lucas Oleniuk / Toronto Star) | Order this photo

Rosita Meristil pulls her blue cardigan tightly about her lean frame. It is barely past five, the sun is not yet up, and the chill burrows into bones.

Rosita’s partner, Delius Elistin, is seated on the thin pallet-of-a-bed in the filthy, grim shed in which he and Rosita and their 2-year-old son, Lypse, reside.

Lypse, in his red sleeping cap and T-shirt imprinted with the words All-Star, is snuffling like hell. He plunks himself on Elistin’s lap. There are embers smoldering on the ground and a pot of soup upon the embers. Rosita has cut plantain and potatoes into the brew. This may sound pleasant. It isn’t. The smoke from the fire is noxious and captured thickly in this little fire trap.

It’s difficult to get one’s bearings in the predawn. The trees cast black silhouettes against the sky. On the trip up here to Fermathe women were clustered by the road — apparitions awaiting tap-taps to take them, and their merchandise, to market.

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Rosita fetches the broad, shallow basket into which she has placed the day’s commodities: buds of garlic; packages of spaghetti — provisions she previously purchased at a supermarket an hour away in Pétionville. She places the basket upon her head and reties the apron that she has draped over her thin skirt. On her feet she is wearing plastic slides, and as she sets off on her journey the sandals slap hard against the macadam path. Ahead — 40 minutes at Rosita’s smart pace — is the market where, over the course of the day, she will attempt to sell her modestly priced goods, thereby earning a few gourdes to help feed her family.

In Haiti there are hundreds of thousands of Rositas, stuck in place, today’s ti profit swallowed whole. Tomorrow mimics yesterday, scratching for the money to buy the goods, and so it goes, a mean cycle unbroken.

And yet. Perhaps with a little credit, a financial leg up, Rosita could be one who breaks the pattern. You can imagine her as an exemplar. You can imagine that by extending microfinance assistance she could progress some way toward lifting herself out of poverty. Perhaps then you can fantasize that this would go some distance toward raising the extended family, including her niece, Lovely, above their preordained financial future.

You could think all that, only to find out how wrong you are.

We are standing in the umbra of St. Jacques Catholic Church, from which vantage point we can gaze down upon the Fermathe market — the dogs scavenging in the garbage; the transport truck whose box cab has tipped nose down into the dirt.

“I work all over this mountain,” Jaclisus says, sweeping her arm toward what, from a distance, is a pretty landscape.

In the foreground a string of merchants occupies a row of red-roofed stalls, prime selling spots and far superior to the patches of scorching pavement claimed by such peddlers as Rosita. “The sellers have been there since 1998,” Jaclisus says of the sheltered merchants. “But they are no longer part of a credit program. They stopped making their payments, so no microcredit organization wants to give them credit now.” The merchants ask Jaclisus repeatedly for help, to which she firmly answers “No.”

She can size up potential clients quite quickly, Jaclisus can. There are vigorous women she can spot as driven, determined to succeed. Others, she can quickly assess, don’t have that kind of moxie. Character isn’t everything: the Fonkoze approach is to have women clustered in “solidarity” groups of five. There are social (moral support) and financial (peer pressure that helps ensure the group works toward shared objectives — and loan repayment) benefits.

A decade ago, Jaclisus worked for Mennonite Economic Development Associates, a Waterloo, Ont., based organization that arrived in Haiti in 1984 intent on becoming a microfinance entrepreneur in the country. MEDA additionally launched a program in the post Jean-Bertrand Aristide period to help rebuild rural markets, says MEDA president Allan Sauder.

By 2004, MEDA’s plans had changed. “There came a point where they were bigger and stronger and had more access to cash,” Sauder says of Fonkoze. “So it made sense to roll our program into theirs.”

Jaclisus rolled with it and while she was formerly one of a group of 11 agents, today she is the sole Fonkoze representative in the region. “There were some who were stealing the money, doing bad things with the loans,” she says of her erstwhile coworkers.

We stroll down into the market, through the throng of timachann, the rural market women who sell cigarettes and bread and rice and, especially at this time of year, the joumou, or squash that goes into the soup for every household’s New Year’s celebration. Many of the women are, or would like to be, Fonkoze clients.

Rosita is sitting back on her haunches on her little sun-baked square, waiting for customers to come to her. Jaclisus has agreed to meet Rosita to explain how Fonkoze could help grow her meagre market enterprise. The meeting is brief. Rosita rises, clearly anxious, clearly uncomfortable. She says she would rather have any such discussions with Elistin present.

Interest rates as high as 87 per cent; borrowers taking out simultaneous loans from multiple institutions; large-scale defaults; reports of suicides by those crushed by debt; abusive loan recovery practices.

The microfinance business is at the brink of collapse.

No, not in Haiti, but in India, where the concept of small lending to the uncollateralized rural poor had its beginnings.

Three decades ago, Bangladeshi economist Muhammad Yunus conceived of the idea of getting credit into the hands of those forgotten — or rather, ignored — by the conventional banking system.

It was this class that had been exploited by usurious money lenders, Yunus noted, and it was this class that could break the low-income cycle via an injection of credit.

Yunus dubbed the initiative the Grameen Bank Project, especially targeting poor women as a way to enhance income-generating activities.

There were a number of operational principles: in order to obtain a loan, a borrower must join together with a group of borrowers; loans would be issued in continuous sequence, with a new loan coming available only after the repayment of the existing loan; and the bank would provide this service “at the doorstep of the poor.” The bank, said Yunus, should go to the people, not the other way round.

Grameen’s mission: to help the poor help themselves in overcoming poverty. Such extenuating benefits as “social empowerment” were often cited, especially in the case of women.

Yunus was awarded the Nobel Peace Prize in 2006 as the microfinance industry spread like wildfire, with more than 150 million clients worldwide today. More than 100 million of those are women.

The downside was noted by Yunus himself last June in a speech in San Francisco: “We started out with the idea of getting loan sharks out of people’s lives,” he said. “Now microfinance institutions are getting into the loan sharking business.”

This was not a new observation: rapid privatization of India’s microfinance industry had spurred usurious rates of interest, particularly in the state of Andhra Pradesh, an outcome that had been garnering headlines for at least five years. It took the recent stock exchange listing for India’s SKS Microfinance Ltd. — about which Yunus has been especially critical — to help the crisis find its tipping point. The news lens on microfinance was not credit as a means to advance a positive social outcome, but credit as a means to create the profit-spinning foundation of a share-issuing company.

The Reserve Bank of India has now ordered an examination of the industry, a special government ordinance in Andhra Pradesh has introduced regulatory restrictions and the alarm has been sounded by even those cautious of the benefits of microfinance that an ill-conceived clampdown could threaten the industry throughout the whole of the subcontinent.

In an Indian Express op-ed last week, a group of academics who have individually done groundbreaking work on the efficacy of microfinance, including MIT economics professor Esther Duflo, wrote, “If we are not careful we may end up in the pre-microfinance world.”

It’s an unbanked country sputtering along on the back of a failed economy desperately primed by a panorama of non-stop buying and selling, which itself is commonly primed by small loans.

What does it get you?

“What microfinance does is add lubricity to the system. It improves spatial arbitrage,” says Craig McIntosh, an associate professor of economics at the University of California, San Diego.

Translation: Rosita buys garlic in Pétionville. She brings it back to the market in Fermathe and sells it at a modest profit. “It’s not going to be economically transformative,” says McIntosh. “It’s not going to generate employment. What it’s doing basically is taking a circumstance where there’s money to be made off moving goods from one market to another.”

This job falls to women. “Women are the actual supply chain of most basic commodities in Haiti,” says Fonkoze director Carine Roenen. “We’ve got stories and stories of women who start from scratch and who build up really sustainable livelihoods for themselves, put their kids through school. . . . It’s what keeps us going.”

Mona Remy is a goods mover, then. She’s 37 and a Fonkoze client, an experience that has been personally transformative. From her street-front shop she sells tinned corn and mayonnaise; vegetable oil and hot sauce. Before she joined Fonkoze the size of her shop was a quarter what it is today. “You couldn’t even call it a business,” she says.

She heard about Fonkoze and understood the requirement of joining in the company of four other women. Each member of the solidarity group takes out a three-month, 3,000-gourde ($75) loan to start. One of the group proved a bust. The other four moved in and paid off her loan. “She was making trouble,” Remy says. What kind of trouble she won’t say. The group continues as a company of four.

Remy buys from various wholesalers. She travels to the industrial park owned by the Mevs family near Cité Soleil and stocks up on tinned goods: mackerel, tomato paste.

She pays 1,000 gourdes for two dozen 12-ounce tins of tomato paste. She sells each tin for 50 gourdes. She rattles through the math. Lowering the price doesn’t result in a much quicker turnover, she has noted, so she’s content with her price point and 200 gourdes profit on each box of 24.

Remy, you can see, is a go-getter. Her most recent loan: 75,000 gourdes bearing a monthly interest of 4.7 per cent. Solidarity loans are structured not to extend beyond six months. Remy has saved 125,000 gourdes, or roughly $3,000, which will, she hopes, go toward the eventual purchase of a pickup truck so she can become a distributor to market women.

“Next time you come you will see me in a big depot,” she says with a winning smile. She’s enormously confidant and not the type of woman you would bet against.

It’s an uplifting anecdote.

Fonkoze has 42,000 microfinance clients in Haiti currently. More than half exist on less than $1 a day. If there weren’t success stories like Remy’s, says Carine Roenen, “We would have quit a long time ago.”

Roenen does not brush aside difficulties Fonkoze has had, the sort of difficulty referred to by Gertrude Jaclisus. “The quality of the portfolio was really bad,” in Port-au-Prince, she says. She notes de-motivated agents not bothering to meet with clients on the one hand, or becoming too pushy and aggressive in seeking loan payments on the other. There have been cases of theft. The risk of over-indebtedness in the capital is certainly real, she says, where clients individually might borrow from one institution to repay another and where the client base broadly is unstable and fluid.

After a thorough audit, Fonkoze retrenched to focus its efforts on rural women. Still, last year’s annual report tells an interesting tale. Fonkoze is a not-for-profit foundation, but within that, Fonkoze Financial Services is a commercial enterprise with operations that include wire transfer services to get money from the diaspora — remittances contribute more than a third to Haiti’s gross national product — into the hands of Haitians at home.

The numbers tell an unhappy tale: a net operating loss last year of $642,000. The year before that it reported a $1.7-million loss. Focusing on profitable branches has been the inevitable outcome.

India is nowhere near a comparable situation. Still, it’s not too early to suggest that Haiti should learn by example.

Craig McIntosh at UCal says the media have done a poor job of excavating what went wrong in the birthplace of microfinance. “You’ll see again and again reports of, well, this person took one loan for $200 and then another loan to pay that one and another loan and another loan,” he says. “The problem that they’re describing is over-indebtedness and the policy response has been we need to cap interest rates and those two things are almost unrelated to each other.”

What is required, he says, is a credit bureau — or some system that allows lenders to cross-reference and price risk and protect clients from making bad choices. It doesn’t exist in Haiti.

Such a credit bureau, wrote Esther Duflo et al. last month, should be an immediate starting point to reform in India.

Duflo, it should be noted, is one of the few researcher/academics who have undertaken a randomized evaluation of the effects of group-lending microcredit. As founder and director of the Jameel Poverty Action Lab, or J-Pal, she is at the forefront of a global initiative assessing whether programs such as microfinance reduce poverty — “skeptical empiricists” BusinessWeek called them. In a study released in May, 2009, Duflo probed whether microfinance really does live up to the promise cited by the World Bank and others. As Duflo notes, the list of promises on the World Bank website is long: “eradication of poverty and hunger, universal primary education, the promotion of gender equality and empowerment of women, reduction in child mortality and improvement in maternal health.”

Duflo found something less than that. Microcredit, she wrote in the conclusion to her study, “appears to have no discernible effect on education, health, or women’s empowerment. . . . Microcredit therefore may not be the ‘miracle’ that is sometimes claimed on its behalf, but it does allow households to borrow, invest, and create and expand businesses.”

Fonkoze itself states a lofty goal as part of its mission, to “reverse the decline in Haiti’s economy by empowering and motivating families to engage in sustainable economic development.”

More than 30 years after its conception, the providers of microfinance are only at the early stages of building a comprehensive picture of what small credit to the poor can do. Fonkoze, which has forged an alliance with Grameen for both financial and social management assistance, has adopted the Progress out of Poverty Index, which is designed to measure outreach to the poor. A study two years ago found that seven per cent of Fonkoze clients had moved above the $1-a-day poverty line. Progress, yes. But it also found that the incidence of poverty for clients exiting the program was slightly higher, at 54 per cent, than for incoming clients, 51 per cent.

Elistin has met with Gertrude Jaclisus and likes the Fonkoze idea.

Rosita smacks her hands together. She twists her fingers. She snaps a weed from the path just to have something in her hand, nature’s worry bead.

She hates the microcredit idea.

She doesn’t like dealing with other people’s money. She’s afraid of being robbed. Her uncle owes a great deal to a microfinance institution and, from the sounds of it, he’s on the lam. Some of the money was stolen. Some was lost. She hates credit. “If I borrow 20 gourdes from you today I promise to get it back to you by the end of the day,” she says. Debt means stress. “Even if you have (only) one gourde which is yours you don’t have any stress.”

She places the palms of her hands together, as if beseeching to be understood.

The ever-present Lypse is twisting his fist into the leg of the cotton, rose-patterned shorts Elistin is wearing.

Next September, Rosita would like to send Lypse to school. She doesn’t know how much it will cost. She is trying to save 100 gourdes a day. Where does she keep her money? “It’s secret.”

She’s impatient. Assertive. She smacks her feet against the ground. “I’m standing on what I’m saying,” she says. Three times she says it. “I don’t want that loan.”

I’m getting used to unpredictable outcomes. To having my preconceived notions tested and tried. Rosita herself says she would rather put her faith in God.

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